It wasn't supposed to be like this. Labour's much-praised defence review of 1998 never contemplated an Iraq and an Afghanistan simultaneously. In military language it envisaged one "relatively short war – fighting deployment" and one "enduring non-war-fighting operation". Instead we have had two long hot wars, one of which, Afghanistan, has every sign of "enduring" for a long time to come. Iraq may to all intents and purposes be over, but as the death toll inexorably rises Afghanistan makes the assumptions of 1998 invalid.

Commentators now plausibly argue that our defence is in crisis. The personnel are tired and the equipment is worn out. Procurement is in disarray and in its own annual report for 2008 the MOD noted that such was the impact of overstretch that fewer than half of all military units were ready to deploy on operations in an emergency. Only the goodwill and "can-do" attitude of the forces themselves have helped to paper over the cracks. Usually Trappist senior officers have felt compelled to speak out, first in private and then, more recently, in public. Afghanistan has brought all of this to a head. There is still no clearly enunciated strategy to co-ordinate political, economic, military and counter-narcotic policies. There is a continuing shortage of helicopters and armoured vehicles. The enemy has changed his tactics from outright confrontation to roadside bombs which we have been slow to counter.

A fortnight ago in the House of Commons, Gordon Brown dismissed my call for a defence review; two days ago the new defence secretary announced that preparations were being made for one. The ideal process is easy to describe: establish your foreign policy objectives, assess the military capability necessary to achieve these objectives, and calculate the financial resources to provide that capability. In short, balance resources and commitments.

But this is no longer an ideal world. In 1998 there was financial stability and the prospect of economic growth. In 2010 defence will not be immune from cuts in public expenditure. To reach a coherent conclusion, the review must be able to look at everything including "big ticket" items such as Trident and the aircraft carriers, neither of which would be of direct relevance to engagements like Afghanistan. There will be hard choices to be made. Liberal Democrats have already made one. We cannot afford a like-for-like replacement of Trident. If we are going to engage successfully in operations such as Afghanistan, we must train and equip our armed forces for that purpose. If we cannot or will not, we have no right to ask our young men and women to risk their lives.

But there is one choice we can make. We can at last make sense of European defence co-operation. Instead of half-in, half-out, the UK should be leading the charge. We can start by calling a European defence review to establish targets for future capabilities, to rationalise and integrate procurement, and to consolidate the European defence industry. This is not about the phantom Euro-army of sceptic nightmares or federalist dreams. This is not about politics, it is about arithmetic. Our future operations will be multinational. Is it so extraordinary to argue that multinational forces should be backed by multinational procurement, multinational assets and multinational budgets? A domestic defence review, certainly, but a European one is just as essential.